Brent Crude Tops $100 as Middle East Conflict Drains Global Oil Buffers

Supply Routes Under Siege

Brent crude climbed back above $100 per barrel on July 23, marking the first breach of that threshold since May as the Middle East conflict escalates. The benchmark international oil contract last crossed $100 on March 12 during the initial phase of the US-Israeli war on Iran, and before that when Russia invaded Ukraine in 2022.

The latest surge stems from attacks by pro-Iranian Houthi forces in Yemen targeting Saudi tankers in the Red Sea. These strikes threaten to expand the conflict zone and potentially sever the export of millions of barrels of oil from one of the world's largest producers. Global oil consumption runs slightly above 100 million barrels daily under normal conditions.

The International Energy Agency reported in mid-July that world production sits approximately 9.4 million barrels per day below pre-war levels. Saudi Arabia had been routing roughly three quarters of its pre-war export volume through the Red Sea port of Yanbu after the Strait of Hormuz closure forced a shift to pipeline shipments. That workaround now faces serious disruption.

Depleted Cushions Raise Stakes

The threat to Red Sea shipping routes carries higher stakes than previous disruptions because strategic and commercial oil inventories have already been drawn down since the war began. Maya Senussi of Oxford Economics noted that the blockade and attack threats will make Red Sea passage less viable in the near term.

Oxford Economics projects that if both the Red Sea and the Strait of Hormuz become effectively closed to traffic, oil prices could eventually reach $160 per barrel. Janiv Shah, vice president at Rystad Energy, pointed out that much of the world's spare production capacity has already been deployed, leaving markets with fewer buffers against prolonged supply disruptions.

The IEA warned on July 22 that renewed fighting in the Middle East was increasing concerns over energy supplies, though it identified several cushioning factors still in play.

Limited Relief Mechanisms

Increased exports from Brazil, Kazakhstan, the United States and Venezuela are providing some supply relief, according to the IEA. Saudi and Emirati oil continues reaching markets through alternative routes, while China has been working to reduce its import volumes. Around 30 IEA member countries hold more than one billion barrels of oil in reserve.

Kpler consultancy calculated earlier in July that a record 1.35 billion barrels of "oil on water" - product already at sea - was helping limit further crude price increases. TotalEnergies CEO expressed confidence when announcing second quarter results on July 23, stating the company faced no problems with stocks to supply its refineries.

Central Bank Concerns Mount

European Central Bank President Christine Lagarde expressed alarm on July 23 at the Houthi attack on a Saudi vessel in the Red Sea. She noted the situation "is clearly going to have an impact and is having an impact," visible in Brent prices evolving almost hourly. Some ECB governors had already raised the possibility of rate hikes in response.

Inflationary pressure from energy costs could push central banks to maintain elevated rates or even raise them further. Energy expenses affect both production and consumption, with knock-on effects for economic growth extending beyond oil to include winter gas costs.

The combination of active conflict, constrained alternative routes, and reduced strategic buffers presents a materially different risk profile than previous oil price spikes. Markets face diminished room to maneuver as the conflict shows no signs of resolution, with Asia's major oil importers - including China, India, Japan and South Korea - particularly exposed to sustained price elevation given their dependence on Middle Eastern crude.